Among the wide range of effector mechanisms that the immune system can use or recruit, it generally chooses only a restricted set of responses to ensure its defense against defined pathogens. Peripheral CD4+ and CD8+ T lymphocytes carry out these different functions during immune reactions, partly as a result of the distinct patterns of lymphokines that they secrete upon stimulation. By using thymic cells from adult and newborn mice as well as from fetal thymic organ cultures, we showed during the past year that this functional differentiation occurs inside the thymus, and is completed during the single positive stage, by the time the T cell receptor becomes fully coupled to the intracellular activation pathways leading to lymphokine secretion. Surprisingly, CD4+8- thymocytes differed from their immediate progeny, naive peripheral CD4+ cells, in that they secreted a broader spectrum of lymphokines, including IL-4, IL-5, IL-10, and gamma-interferon, and in fact more closely resembled immunologically experienced (activated or memory) CD4+ lymphocytes. At least some of these cells represent newly developed thymocytes, and not recirculating cells, as they were generated in thymic organ cultures from 14 day fetuses. The frequency of IL-4 producing cells among CD4+8-, HSA low adult thymocytes was 1 in 20, and some of these cells were shown to emigrate from the thymus to the spleen over a 10 hr period. Our interpretation of these results is that the CD4+ thymocyte lineage goes through a previously undetected stage of development in which the cell can produce all the lymphokines characteristic of CD4+ memory T cells if they are stimulated through their T cell receptors. Subsequently the cells revert to a phenotype characteristic of virgin peripheral T cells which are only capable of making IL-2 on stimulation. Why CD4+ cells pass through this differentiation stage is not currently understood.